1992 (8) TMI 110 - AT - Income Tax

Summary

Issues Involved:
1. Lack of enquiry by the Income-tax Officer (ITO)
2. Skipping of the assessment year 1985-86
3. Postponement of tax due under section 140A
4. Loss of revenue from wealth-tax assessment
5. Reduction in tax rates for the assessment year 1986-87
6. Incorrect reasons furnished by the assessee for changing the accounting period

Detailed Analysis:

1. Lack of Enquiry by the Income-tax Officer (ITO):
The Commissioner of Income-tax (CIT) found that the ITO did not conduct any enquiry before accepting the assessee's request to change the accounting period. The CIT emphasized that the ITO should have scrutinized the reasons provided by the assessee and ensured there was no loss of revenue. The Tribunal upheld this finding, noting that there was no material on record indicating that the ITO had examined the application thoroughly. The Tribunal cited decisions from various High Courts, including Gee Vee Enterprises v. Addl. CIT and Thalibai F. Jain v. ITO, which support the CIT's jurisdiction to revise orders where no enquiry was conducted.

2. Skipping of the Assessment Year 1985-86:
The CIT observed that by changing the accounting period, the assessment year 1985-86 was skipped, resulting in no income-tax assessment for that year. The Tribunal agreed, noting that the lottery income, which should have been taxed in the assessment year 1985-86, was instead deferred to the assessment year 1986-87. This postponement led to a loss of revenue due to lower tax rates applicable in the assessment year 1986-87.

3. Postponement of Tax Due Under Section 140A:
The CIT argued that the change in the accounting period resulted in an 18-month delay in the payment of tax under section 140A for the assessment year 1986-87. However, the Tribunal found this objection to be of academic interest, as the return for the year was due by 30-6-1986, and the tax was to be paid by December 1986. Since the CIT had already cancelled the change in the accounting period, this objection became infructuous.

4. Loss of Revenue from Wealth-Tax Assessment:
The CIT noted that the change in the accounting period resulted in no wealth-tax assessment for the assessment year 1985-86, despite the assessee receiving a substantial lottery prize. The Tribunal upheld this point, stating that the change in the previous year automatically shifted the valuation date under the Wealth-tax Act, leading to a total escapement of wealth-tax for the assessment year 1985-86. The Tribunal emphasized that the receipt of a significant amount indicated a prima facie liability for wealth-tax, which the assessee did not refute.

5. Reduction in Tax Rates for the Assessment Year 1986-87:
The CIT highlighted that the postponement of the lottery income to the assessment year 1986-87 resulted in a loss of revenue due to reduced tax rates. The Tribunal agreed, noting that the loss on this account amounted to Rs. 11,14,436, a figure not disputed by the assessee. The Tribunal cited the Calcutta High Court's decision in Shreepati Distributors Ltd. v. ITO, which held that considerations of malafides are irrelevant in judging the validity of the order under section 3(4).

6. Incorrect Reasons Furnished by the Assessee:
The CIT found that the reasons provided by the assessee for changing the accounting period were factually incorrect and unsubstantiated. The Tribunal upheld this finding, noting that the assessee's representative admitted that the reason related to convenience in transactions with banks was incorrect. The CIT also found that none of the firms in which the assessee was a partner had accounting periods ending in June or July, and the third reason related to procurement of orders was vague and unsupported by evidence.

Conclusion:
The Tribunal upheld the order passed by the CIT under section 263, finding that the order of the ITO was both erroneous and prejudicial to the interests of revenue. The Tribunal emphasized that the CIT's jurisdiction under section 263 is supervisory and intended to counteract orders that cause prejudice to revenue administration. The appeal was dismissed, and the order under section 263 was upheld.